Welfare Improving Tax Evasion

Chiara Canta (), Helmuth Cremer and Firouz Gahvari

No 13483, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We study optimal income taxation in a framework where one's willingness to report his income truthfully is positively correlated with his type. We show that allowing low-productivity types to cheat leads to Pareto-superior outcomes as compared to deterring them, even if audits can be performed costlessly. When there is no cheating, redistribution takes place on first- and second-best frontiers and can never make low-ability types more well-off than high-ability types. Letting low-ability types cheat allows first-best redistribution up to a limit at which low-ability types are better off than high-ability types.

Keywords: audits; tax evasion; optimal taxation; welfare-improving (search for similar items in EconPapers)
JEL-codes: H20 H21 H26 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2020-07
New Economics Papers: this item is included in nep-acc, nep-iue, nep-mic and nep-pbe
References: Add references at CitEc
Citations:

Published - published in: Scandinavian Journal of Economics, 2024, 126 (1), 98 - 126

Downloads: (external link)
https://docs.iza.org/dp13483.pdf (application/pdf)

Related works:
Journal Article: Welfare‐improving tax evasion (2024)
Working Paper: Welfare-improving tax evasion (2024)
Working Paper: Welfare improving tax evasion (2020)
Working Paper: Welfare improving tax evasion (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp13483

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().